Safety Reserve®

June 2022

Most benefit funds are structured to perform well under normal market conditions. However, during a full-scale market panic, the everyday rules of the investment game change. The liquidity of ordinary common stocks and bonds may vanish overnight. Even if a buyer for a security can be found, the offered price may be so low as to make the deal a poor choice.

Trustees must never find themselves in a position requiring the liquidation of high quality long-term holdings at distressed prices in order to pay promised benefits. A Safety Reserve portfolio is a practical mechanism for protecting a fund during a “market meltdown,” and thus represents a form of self-insurance against financial disasters. With a well-designed Safety Reserve, a fund will never miss a benefit payment, even in an environment that bankrupts other funds. This security permits Trustees to formulate a long-term investment strategy that is opportunistic rather than defensive.